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Net absorption in the Austin retail market went into the red for a second consecutive quarter—only the second time in almost a decade—at negative 255,000 sq. ft. as of Q3 2020.


EXECUTIVE SUMMARY

Occupancy drops to 95.1%
Net absorption in the Austin retail market went into the red for a second consecutive quarter—only the second time in almost a decade—at negative 255,000 sq. ft. as of Q3 2020. This was down from negative 37,000 sq. ft. for Q2 2020 and positive 175,000 yearover- year. Leasing activity—which is comprised of both new leases and renewals—included 368,000 sq. ft. of signed deals, down 50% from this time last year, although up 50% quarter-over-quarter. The overall occupancy rate decreased by 40 basis points quarter-over-quarter, and 60 basis points year-over-year at 95.1%. The retail market saw overall average asking rates drop between 0.5% to 0.9% per sq. ft. over the past year to finish at $21.77 on a triple-net basis. A year ago, average rates were at $21.88.

Economic indicators
The Federal Reserve Bank of Dallas reported that the Austin economy continued to improve in August. While jobs and the unemployment rate improved in June, July and August, neither metric has returned to its March level. Regional consumer spending since mid-July held at pre-COVID-19 levels. Austin’s unemployment rate fell further to a still elevated 5.4% in August. The jobless rate ticked down to 6.8% in Texas and 8.4% in the nation. Austin payrolls expanded 6.1% (nonannualized), or by 62,620 net jobs, in the three months ending in August. Leisure and hospitality led the expansion with a 19.1% increase, or 16,570 jobs. Sectors that experienced losses were construction and mining (-1.2%, or 840 jobs) and information (-0.6%, or 210 jobs). Manufacturing and financial activities were the only sectors to post positive job growth for the first eight months of the year.


MARKET OVERVIEW

Supply and demand
The Austin retail market realized net absorption of -255,000 sq. ft. in Q3 2020—the measure of total square feet occupied in existing buildings, (indicated as a move-in) less the total space vacated (indicated as a move-out) over a given period. During July, August and September, 64,000 sq. ft. was delivered to the market, and of the 950,000 sq. ft. of new construction delivered year-to-date, 83% has been leased. Of the 1.2 million sq. ft. still in the pipeline, 53.3% of that space is available.

Investment sales
Real Capital Analytics data reports quarterly retail sales volume for Q3 2020 in the Greater Austin area at $279.8 million involving 22 properties, down compared to this time last year at almost $2 billion including 84 properties. The capital composition for buyers in 2020 was made up of 62.4% private investors, and 14.8% cross border (a transaction is defined as cross-border if the buyer or major capital partner is not headquartered in the same country where the property is located). For sellers, the majority was about half institutional and half private investors.

Average asking rents
The retail market in the Austin area saw triple net average asking rents at $21.77 per sq. ft. at the end Q3 2020, up between 0.5%-0.9% during the past year. Rent growth has varied across Austin submarkets, and with additional space likely coming available in Austin, tenants may have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements and concessions. The CBD ($31.46 per sq. ft.) and Southwest ($26.68 per sq. ft.) submarkets currently have the highest annual overall average rate.

Housing market climbs despite low inventory
Home sales in the Austin-Round Rock MSA continues to show strength despite economic challenges and a decreasing housing inventory. In September, home sales increased 31.5% year-over-year to 3,892. Historically this time of year home sales are slower, but because of decreased activity during the shelter-in-place orders due to the COVID-19 pandemic, the summer selling season extended into September. The market’s strength was evident across the five-county MSA as sales dollar volume jumped 51.7% to $1.8 billion, and the median price rose 12.1% to $355,000.


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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